Abstract: Embryonic stem cells (ESC) are totipotent cells that can differentiate into a large number of different cell types. Stem cell-derived, differentiated cells are of increasing importance as a potential source for non-proliferating cells (e.g., cardiomyocytes or neurons) for future tissue engineering applications. Differentiation of ESC is initiated by the formation of embryoid bodies (EB). Current protocols for the generation of EB are either of limited productivity or deliver EB with a large variation in size and differentiation state. To establish an efficient and robust EB production process, we encapsulated mouse ESC into alginate microbeads using various microencapsulation technologies. Microencapsulation and culturing of ESC in 1.1% alginate microbeads gives rise to discoid colonies, which further differentiate within the beads to cystic EB and later to EB containing spontaneously beating areas. However, if ESC are encapsulated into 1.6% alginate microbeads, differentiation is inhibited at the morula-like stage, so that no cystic EB can be formed within the beads. ESC colonies, which are released from 1.6% alginate microbeads, can further differentiate to cystic EB with beating cardiomyocytes. Extended supplementation of the growth medium with retinoic acid promotes differentiation to smooth muscle cells.